The Taskforce for Climate-Related Financial Disclosure (TCFD) was established to provide a comprehensive framework for companies to assess and disclose their climate-related risks and opportunities.
The TCFD was launched in 2015 - same year as the Paris Agreement - by the Financial Stability Board (FSB), an international body that monitors and makes recommendations about the global financial system. In its own words: “One of the essential functions of financial markets is to price risk… Without the right information, investors and others may incorrectly price or value assets, leading to a misallocation of capital.” In other words, because climate change has a significant impact on the long-term value of a company, allocators of capital need to understand a company’s potential climate-related risks to understand investment risks. And to put it another way, climate change and the financial health of companies are inextricably connected.
The 2015 Paris Agreement set one goal for state and non-state actions: achieve net zero by 2050. Following that mandate, commitments were made by the public and private sector. But in making those commitments, the requirement to track, report and disclose has historically been voluntary. The TCFD has been considered international best practice and began as a voluntary set of recommendations. It has quickly become part of the regulatory framework in many jurisdictions, including the European Union, Singapore, Canada, Japan and South Africa. New Zealand and the United Kingdom are mandating climate risk disclosures in line with the TCFD by 2023 and 2025 respectively. This is part of the growing efforts to address global climate change thoroughly. Beyond government alignment with the TCFD, multilateral standard setters like the International Financial Reporting Standards (IFRS) are also incorporating TCFD recommendations in the much-awaited (ISSB) framework.